Nigeria and South Africa, which are the two biggest economies in Sub-Saharan Africa are the two major contributors to the unprecedented increase in external borrowing in the region in 2017.
A report on International Debt Statistics (IDS) newly released by the World Bank showed that Nigeria’s external debt stock increased more than that of any other country in the region, recording 29 percent growth in the review period. South Africa on the other hand came on the heels of Nigeria with a 21 percent increase in external debt stock in the same period.
“Countries in sub-Saharan Africa accumulated external debt at a faster pace than low and middle income countries in other regions in 2017: the combined external debt stock rose 15.5 percent from the previous year to $535 billion. Much of this increase was driven by a sharp rise in borrowing by two of the region’s largest economies, Nigeria and South Africa, where the external debt stock rose 29 percent and 21 percent respectively”, the World Bank IDS report hinted.
Meanwhile, most countries in Sub-Saharan Africa are not able to attract enough Foreign Direct Investment (FDI) inflow to ameliorate the effect increased borrowing on their individual economies; rather FDI inflows nosedived in the review period.
According to the World Bank, “a 27 percent slump in FDI inflows to Sub- Saharan Africa was largely attributable to the lingering effect of weak oil and commodity prices. These led to a sharp contraction in FDI inflows to major recipients in the region including Angola, Nigeria and South Africa. However, inflows to more diversified economies remained resilient.”
A bulk of borrowing in the region could be traced to bond issuance by sovereigns and public- sector entities, which surged to a record level in 2017.
Bond issuance by sovereign governments and public-sector entities in the region rose to $27 billion in 2017, a more than fourfold increase over 2016, driven to a large extent by a surge in issuance in South Africa to $19 billion from $4 billion in 2016, 70 percent of bond issuance in the region last year.
An important factor was non-resident purchase of bonds issued in the South African domestic market. Bond issuance by other countries in the region totaled $8 billion, a tenfold increase from 2016, reflecting continued investor confidence and search for yield. Issuing countries in 2017 were Nigeria ($4.8 billion), Cote D’Ivoire ($2 billion), Senegal ($1.1 billion), and Gabon ($0.2 billion). Nigeria’s $3 billion Eurobond issuance marked the country’s largest such operation to date, and at end 2017, bond issuance accounted for one third of the country’s outstanding external debt.
